NOEL-LEVITZ WHITE PAPER UU PP DD AA TT EE DD ffoorr tthhee Connecting Enrollment uueennccccooeennrroottaammiinnyy and Fiscal Management Guide Your Campus Through the Uncertain Economy With the Fiscal Indicators InventoryTM How is your institution using its fi scal resources to greatest advantage to fulfi ll its mission and meet expectations in today’s economy? In an era of reduced resources and escalating costs, it’s a question that every institution of higher education should be asking. Yet, despite the economic pressure, many campus leaders still need to take steps to fully integrate their enrollment policies and fi scal management. While institutions have become increasingly sophisticated and proactive in managing their enrollment outcomes, campus administrators often continue to set goals and pursue objectives for enrollment and fi scal policy without suffi ciently connecting these two areas. At the heart of this issue are questions such as: • How certain are you that your tuition, fee, and fi nancial aid structures are providing the strongest enrollment and revenue results possible? • How are you monitoring the changing demographics and price sensitivity of prospective students in your marketplace? • How do you know that you are offering the optimal number and variety of academic courses and programs in order to meet enrollment needs and address fi scal realities? • Are you re-allocating at least a percentage of your operational budget to new initiatives based on sound analysis of current strategies and tactics? • What metrics should you be tracking in order to harmonize your enrollment and revenue goals? Continuing to conduct “business as usual” is no longer good enough. To succeed and thrive in the new economic reality, campuses must adapt to change and use quantifi able metrics to eliminate redundancies and ineffi ciency. Originally released in 2005, this white paper has been updated to address changes in the economy and the fi scal challenges institutions now face. Inside... Pricing—is your current pricing model the correct one for your institution? …………………................................................... 3 Financial aid policies—are your policies aligned with your institution’s objectives? ...............................................................… 4 Institutional positioning assessments ………….…......................……… 5 Marketing and recruitment expenditures ……....…...................………. 8 Student retention expenditures ………………….......................…...….. 10 Cost of student populations …………………….........................…..……. 11 Cost of educational capacity and demand ………......................…….… 12 Eight key, revenue-related enrollment Auxiliary income ……………………………………..........................…….. 14 issues form the Fiscal Indicators InventoryTM, beginning with pricing and How to use the Fiscal Indicators InventoryTM fi nancial aid The eight dimensions listed above form the Fiscal Indicators InventoryTM, a tool to help policies. campus administrators think strategically about the important relationship between fi scal planning and enrollment management. Use this Inventory to examine the vital connection between enrollment and fi scal management, to make reasoned decisions in Don’t miss the retention revenue an era of limited resources, and, most importantly, to help with balancing enrollment, discussion on revenue, and expenses. page 10. To guide your thinking, each section of this paper includes key metrics each institution should be tracking and questions to ask in each area, with examples of approaches taken by campuses that are successfully meeting their overall enrollment and revenue goals. If you do not have the data to fi rmly grasp these issues and the related metrics for your campus, you may need to invest in additional research and analysis in order to obtain the information necessary to guide your decision making—an area addressed in the concluding section of this paper. Aided by the perspective and tools presented here, campus leaders can successfully combine fi scal management and enrollment management at this critical juncture in the history of higher education. 2 © 2009 Noel-Levitz, Inc. • Noel-Levitz White Paper — Connecting Enrollment and Fiscal Management I. Pricing Is your current pricing model the correct one for your institution? Needless to say, pricing has a major impact on revenue. However, the relationship between price and revenue is not always a direct one. Price increases can lower revenue, while price decreases can raise it under certain circumstances. In the last decade, higher education institutions have manipulated their pricing models in countless ways to try to improve their fi scal results, with varying degrees of success. Here are six possible approaches for using pricing to meet enrollment goals without sacrifi cing fi scal objectives: 1) Cost-based pricing: This approach sets cost solely in the context of internal fi scal needs and tends to ignore the realities of the external marketplace. It can work effectively for institutions with strong demand. 2) Tuition reductions: In recent years, a growing number of institutions have adopted tuition reduction strategies, usually for the purpose of achieving enrollment growth. A price reduction coupled with enrollment growth can help to raise needed revenue while reducing your discount rate but can also signifi cantly alter an institution’s position in the marketplace vis-à-vis key competitors. Before you consider lowering your institution’s tuition, make sure to examine your capacity and the incremental costs associated with handling the additional enrollment necessary to achieve the net revenue you desire. 3) Tuition increases: This obvious way to raise net operating revenue can be especially useful if your institution’s price is as at the low end of your competitors’, or if you have a substantial number of low- and no-need students with the capacity to absorb planned increases. Absent these conditions, a sharp tuition increase is generally inadvisable. Research from a number of institutions indicates that aggressive price increases frequently have a negative impact on both recruitment and retention, while gradual tuition increases may accomplish the desired bottom- Price increases line revenue improvement. can lower revenue, while price 4) Differential pricing: This strategy is typically employed by adding fees (e.g., lab fees, computer decreases can raise fees) to more costly educational programs, or through true variation in tuition by program or it under certain student academic level. Done systematically, it can make a signifi cant impact on revenue. circumstances. (See Section VII, Cost of Educational Capacity and Demand, on pages 12-13.) 5) Competitive pricing: This approach involves setting prices solely based on your competitors’ costs. Before considering this option, you must not only analyze your competition, but also research the perceptions prospective students and their families have of your educational value. They may not see you and your competition as equally valuable. The importance of researching your competitive position before applying any particular pricing policy can hardly be overstated. Make sure you are not simply relying on your own perceptions of your reputation, competition, market, and target audiences when you set your prices. 6) Level tuition programs: Families pay a slightly higher price during the fi rst year but lock in their tuition for four years. This provides a level of predictability for families and enhances student retention as well. © 2009 Noel-Levitz, Inc. • www.noellevitz.com 3 Key Questions: Pricing Key Metrics: Pricing • Do you want to increase enrollment? If so, how • Available capacity to handle enrollment growth would you manage your existing resources to due to pricing changes (annually) handle an increase in students? • Projected changes to operating and fi xed costs • To what extent would potential revenue gains with enrollment changes (annually) from tuition increases be offset by increased • Top 10 competitors and their gross and net price discount rates? points (annually) • What is your cost per student? How does it vary by • Changes in distribution of admitted and enrolled area or level of study? students by income and/or need level (annually) • How does your price compare to your • Tuition discounting models which measure competitors’? How would a change in price affect the extent to which increased price and net your competitiveness? revenue is offset by the need to increase aid from institutional sources (annually) • Student demand as measured through yield rates on accepted students (annually) • Competitive price elasticity study to understand the institutional attributes that prospective students are likely to value and pay a premium for (every three years) II. Financial Aid Policies Are your policies aligned with your institution’s objectives in terms of enrollment size, revenue attainment, positioning, and remaining affordable? Systematic Along with pricing, fi nancial aid—specifi cally institutional aid—has a major impact on both underawarding enrollment and fi scal condition. Do you know the impact of unmet need or the role of scholarship will eventually awards in the enrollment behavior of specifi c subpopulations at your institution? Have you result in excessive determined how your tuition discount rate and overall discount rate compare with national student borrowing, averages and with those of your competitors? (NACUBO tracks average discount rates for various failure to achieve types of institutions.) Is your net revenue (per student and aggregate) growing, remaining stable, new student or shrinking? As you consider these issues, here are fi ve suggestions to help you optimize your aid enrollment goals, dollars and boost revenue: attrition, and lack 1) Coordinate the development of fi nancial aid distribution policies with a broad group of of access to higher campus offi cials to achieve overall institutional enrollment and net revenue goals. The lack of a education. coordinated, inclusive awarding process typically leads to overawarding, especially when multiple offi ces or departments on campus control funds. 2) Examine how much aid you are awarding to enroll your students. A student’s willingness to pay is an important factor in determining the size of an aid package. Regular, systematic analysis of willingness to pay across student cohorts will help you set the proper aid levels—and determine how much the students you want are costing your campus. Develop a price-sensitivity index showing the enrollment rate for various need-based or merit-award-only students based on the percentage of need met or amount of aid awarded. Is there a point below which the majority of prospective students will cease to enroll? 3) Monitor aid gaps—instances when federal, state, and institutional aid do not keep pace with cost increases, forcing your students to contend with increased unmet need. Systematic underawarding will eventually result in excessive student borrowing, failure to achieve new student enrollment goals, attrition, and lack of access to higher education. 4 © 2009 Noel-Levitz, Inc. • Noel-Levitz White Paper — Connecting Enrollment and Fiscal Management 4) Quantify the level of student borrowing—do this in three broad categories: federal subsidized and unsubsidized student loans, PLUS loans, and non-federal private sector loans. Clearly, students and families that are highly leveraged probably represent the greatest vulnerability to your total enrollment and require differential intervention in terms of fi nancial counseling and advising. Some schools may also shift their strategies for distributing institutional gift aid to provide further support to segments of their student populations who are borrowing heavily to fi nance the cost of college. 5) Maintain a consistent approach to awarding during a student’s time on your campus. Avoid front- end-loading awards; this tactic may improve recruitment but often hinders retention. (See Section V, Student Retention, on page 10.) Key Questions: Financial Aid Policies Key Metrics: Financial Aid Policies • How much are you giving in the way of aid • Award “gaps” between student need and actual packages to the students who enroll? What is the award (annually) willingness to pay of the students you hope to • Percentage of need met/aid awarded in each year enroll? of the student’s career (annually) • Who is involved in your awarding practices? How • Percentage of students who complete the FASFA can you centralize and systematize your process? (annually) • Are students leaving because their fi nancial • Percentage of need met with gift aid versus self- needs are not being met throughout their college help, including total loan burden (annually) careers? • Yield rates by need level and academic ability level (annually) • Yield rates by key enrollment shaping goals (academic program, geographical area, ethnicity, talent, students, etc.) (annually) • Family income distribution in your primary student markets to assess “ability to pay” (annually) III. Institutional Positioning Assessments Do you “know yourself”? This ancient injunction is as important for institutions operating in the dynamic environment of higher education as it is for individuals. Before you can fully assess the relationship between enrollment management and fi scal reality, you must fi rst have an unambiguous sense of your institution’s current and desired market position. Where do you stand relative to your key competitors? Do you have a clear fi x on your top 10 to 15 real competitors? Where are you in terms of your desired position? Have you tracked your share of the available student market over time? The answers to these questions ultimately drive many of the fi scal issues and decisions that follow. To accurately identify your main competitors, use resources such as ACT/SAT overlap reports and data from the National Student Clearinghouse. Formal market research can yield even more precise information about the competition your institution faces at various stages of the college selection process. Since your most important competitors may vary at each stage, it’s essential to collect this information throughout each stage of your enrollment funnel for new students. © 2009 Noel-Levitz, Inc. • www.noellevitz.com 5 Once you have determined your list of key competitors, the selectivity-cost matrix (below) offers a simple, yet revealing tool to help you analyze your current and desired institutional position. Tuition and Fees Place your institution and your top competitors on the Low selectivity, high cost High selectivity, high cost chart according to their position on each axis. The x-axis represents selectivity (usually measured by Selectivity acceptance rates and/or the academic credentials of new students). The y-axis represents cost Low selectivity, low cost High selectivity, low cost (either tuition and fees, or estimated average net cost of attendance after institutionally funded fi nancial aid). By completing this matrix, you will have a quick snapshot of your market position relative to that of your current or potential competitors, as well as how far your campus will need to move in order to reposition itself: Upper right High selectivity, high cost: typically top-tier private colleges and universities with large endowments and highly competitive admissions. Lower right High selectivity, low cost: usually fl agship public colleges and universities, as well as state-supported liberal arts and sciences institutions with more selective admission standards. Upper left Low selectivity, high cost: regional liberal arts colleges and less-selective national liberal arts colleges. This group tends to have smaller endowments and higher tuition discount rates. Lower left Low selectivity, low cost: publicly supported two-year and four-year institutions as well as a handful of very low cost independent colleges. 6 © 2009 Noel-Levitz, Inc. • Noel-Levitz White Paper — Connecting Enrollment and Fiscal Management If you expand the information in the matrix to include the number of admissions lost to each competitor, you can gain an even more accurate sense of your most important competitive challenges: Competitor Analysis (Lost Admits) Costs For many campuses, this competitor analysis provides an N=10 N=3 initial reality check, N=5 clarifying an institution’s competitive position N=14 and the level of resources necessary Selectivity to signifi cantly change its situation. N=35 N=21 N=4 Keep in mind, too, that the rise in social media such as Facebook and Twitter have made it more diffi cult to control an institution’s brand, as word-of-mouth is now transmitted instantly and more frequently, requiring greater vigilance and responsiveness. Key Questions: Institutional Positioning Key Metrics: Institutional Positioning • What is your position now? Where do you wish to • Competitor characteristics and matrix analysis position yourself in the years ahead? (annually): • What will it cost to reposition your institution? – Tuition and fees • How do your resources—for marketing/ – Room and board costs recruitment, student retention, fi nancial aid, – Discount rate academic quality—stack up against competitors? – Academic profi le of entering students (ACT/SAT • Who will you compete against if you attempt to scores, average rank in class, and average high reposition? school grade point average) – College rankings – Endowment per student – E&G (education and general) spending per student – Annual gift income – Retention rate – Selectivity © 2009 Noel-Levitz, Inc. • www.noellevitz.com 7 IV. Marketing and Recruitment Expenditures Are you investing in the most cost-effective marketing and recruitment strategies in order to achieve your enrollment goals while maximizing the return on your marketing and recruiting dollars? Given the vast array of ways to invest your marketing and recruitment dollars, there could hardly be Many of today’s a more challenging question—or one that more clearly calls you to account. With millions of dollars prospective hanging in the balance, including revenue from enrollment and the rising costs of marketing and students are recruitment, the fi scal implications in this area are enormous. “secret shoppers” Yet there have been dramatic changes in prospective students’ behavior in recent years and tracking who are gathering their interests and activities has become a considerable challenge: information about your institution on the Web and from Secret Shoppers their acquaintances using social media (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) like Facebook, 3 Channels of Entry for Pros(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)pects without making (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84) Prospective Students: themselves known Inquiries to your institution. (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) Applicants (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) TM (cid:84)(cid:84) (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84)(cid:84) (cid:84)(cid:84) (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84)(cid:84) (cid:84)(cid:84) (cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84)(cid:84) (cid:84)(cid:84) As shown here, some of today’s prospective students, though they may be interested in your institution, are not identifying themselves until they submit an application. These “secret shoppers” are likely gathering information about your institution on the Web and from their acquaintances using social media, and they are likely among the growing number of applicants who are less- committed to enrolling, due in part to the ease and sometimes-lower expense of completing online applications and the trend of fi lling out applications for multiple colleges. Changes like these are precisely why successful institutions invest in a rigorous analytical approach, guiding their decisions with sound, data-based strategies. Many are fi nding that advanced techniques such as predictive modeling, control group experiments, and fi nancial aid leveraging bring a return many times greater than the initial investment. A simple fi rst step is to benchmark your current cost to recruit a student. The typical four-year private 8 © 2009 Noel-Levitz, Inc. • Noel-Levitz White Paper — Connecting Enrollment and Fiscal Management college spends $2,143 to recruit each new student, four-year public institutions average $461, and two-year public institutions spend $263.* If you are: • Well below these levels and meeting your enrollment and fi scal goals, you may already be operating in a very effi cient and effective manner. • Well below and not meeting your enrollment and fi scal goals, you may not be investing enough in marketing and recruitment to achieve your enrollment goals. • Above these levels, or at these levels but failing to meet your enrollment and fi scal goals, you may need to reallocate existing resources by evaluating each activity for its benefi t versus cost. You may face a situation where the awareness of your institution is lacking and additional marketing and recruitment investments are required. Overspending in this area The typical four- may be an indicator of a weak academic product, a geographically dispersed marketing effort, year private college or a very crowded and competitive primary market. spends $2,143 to recruit each new Analyzing the effectiveness of each marketing and recruitment activity is essential in maximizing student, four-year your recruitment dollars. For example, one campus analyzed its high school visit program and publics average found that the admissions staff saw 1,502 students, received 263 applications, and enrolled 128 $461, and two-year students. While the program was effective, it resulted in only a fraction of the 2,600 freshmen public institutions who enrolled. Ultimately, the expense of the program was deemed too high for the results it spend $263. produced and it was scaled back. Without this painstaking analysis, the campus would not have discovered this. Use research as your guide and you will invariably reap the benefi ts. Key Questions: Student Marketing and Key Metrics: Student Marketing and Recruitment Recruitment • What method do you have in place for • Net revenue versus cost for each marketing and benchmarking your cost to recruit a student? recruitment activity (annually) • Have you analyzed the effectiveness of each of • Recruitment cost per student benchmarked with the following marketing and recruitment activities like institutions (bi-annually) in terms of cost/ hours versus student yield? • Control group testing for each marketing and – Search practices and initial outreach recruitment initiative (annually, staggering each test on a three-year cycle) – Campus visit programs • Conversion rates for each stage of your – Web site and electronic communications recruitment funnel for new students—such – Telecounseling program as inquiry-to-application rates, and admit-to- – Recruitment travel enroll rates and comparison with national data (annually) – Publications and direct mail • Institutional image perception study for each – Advertising initiatives relevant prospective student market (every three years) * Data from the most recent Noel-Levitz Cost of Recruiting Report. © 2009 Noel-Levitz, Inc. • www.noellevitz.com 9 V. Student Retention Expenditures Is your investment in student retention keeping pace with your investment in marketing and recruitment? Investing in student retention may be the most cost-effective outlay you can make in your attempts Because retention to increase revenue and improve effi ciency. A simple but effective method for mobilizing revenue is the campuswide support for retention initiatives is the “dollars lost” scenario: largest enrollment 1) Calculate your average net revenue per student (revenue minus institutionally funded fi nancial revenue stream on aid) and your attrition rate per class to demonstrate the one-year impact attrition has on your most campuses, enrollment-related revenue. an improvement of 2) Show the multi-year impact by forecasting the amount of additional revenue those students even a percentage would bring if each cohort were to stay the number of years that it takes a typical student to point or two in your graduate from your institution. retention rate can produce a signifi cant 3) Compare that to how much it would cost to recruit a like number of new students to your campus fi nancial gain. to replace those who have left. The fi gures usually speak for themselves. Conversely, you can easily demonstrate how an improvement of even a percentage point or two in your retention rate can produce a signifi cant gain in net revenue, as shown in the table below: Cumulative impact of retention improvement Retention Rate/Number Average Net Revenue Retention Rate Category Financial Impact of Additional Students (5% annual increase) First- to second-year 76% (40) $17,359 $694,378 (actual) Second- to third-year 88% (35) $18,400 $644,000 (projected) Third- to fourth-year 94% (32) $19,320 $618,240 (projected) Total $1,956,618 In this example, a four-year private institution realizes nearly $2M in additional net revenue by retaining 40 additional fi rst-year students at an initial average net revenue per student of $17,359. Key Questions: Student Retention • Term-to-term persistence and fi nancial impact analysis (annually at mid year) • Do you have sound intervention programs for your at-risk students? • First-to-second-year retention and fi nancial impact analysis (annually) • Does the entire campus embrace the responsibility of retaining students? • First-to-second-year retention by academic ability level, race/ethnicity, and other demographics that • How much do you have to spend to recruit new may identify at-risk population segments (annually) students versus the costs of retention? • Net revenue versus cost for retention activities such • How are you encouraging your recently-lost, as orientation and academic support (annually) former students to re-enroll? • Second-to-third-year retention and fi nancial Key Metrics: Student Retention impact analysis (annually) • End-of-term course completion rates to identify • Graduation rate data (four-year, fi ve-year, and low-completion-rate courses and programs and six-plus years—for four-year institutions; also, two- fi nancial impact analysis (each term) year and three-year for two-year institutions) and fi nancial impact analysis (annually) 10 © 2009 Noel-Levitz, Inc. • Noel-Levitz White Paper — Connecting Enrollment and Fiscal Management